4 ms·

Let's say you are an honest citizen. You earn $1000, of which all of it is properly taxed. You get $100 in cash and give it to a corrupt official in order to do

by jychang 10y ago

Let's say you are an honest citizen. You earn $1000, of which all of it is properly taxed. You get $100 in cash and give it to a corrupt official in order to do something. Another person is a corrupt official/businessman; under this official, there are maybe 100 people, and each person gives this official $100 in order to get something done. This income is in the form of cash, and is untaxed. If you force everyone to put their money into a bank, then anyone who pays their taxes already has their $900 in assets accounted for and don't need to pay more taxes. If you have $10,000 in cash you need to deposit into a bank and no documentation for it... you'll have a bad time. There is no musical chairs, since the money flows upwards. If you are honest, you should not get hit by any additional taxes. This is the reason why currently most of India supports the move of discontinuing the old currency and replacing it. Unless you take in a large amount over your taxed salary as untaxed bribes, it doesn't affect the amount of money you have.

mangamadaiyan 10y ago
Thank you, that explanation worked better than mine. You pretty much hit the nail on the head.
wav-part 10y ago
Except Govt is making more harder to prosecute corrupt public officials. See my other comment here [1]. [1] https://news.ycombinator.com/item?id=13012515 https://news.ycombinator.com/item?id=13012515
whowalrus 10y ago
But what I don't see are measures to ensure that people will continue to deposit money in the banks / pay their taxes. While I appreciate the move to force the turnover of black money now, what stops someone from starting to accumulate black money again, lets say a few months from now? I hope there are measures being taken in that account.
- a9entroy 10y ago
  Indian logic, in a nutshell.
- sterex 10y ago
  Yes. There are. There will be a cap on the maximum transaction that can be done using cash. So cash accumulation gets reduced. And hoarding large amounts of cash in physical notes will be dissuaded.
  - whowalrus 10y ago
    > There will be a cap on the maximum transaction that can be done using cash. Thanks, I've been hearing rumors about this too [1]. Would be a welcome step if and when the govt. implements it. [1]: http://economictimes.indiatimes.com/news/economy/policy/demonetisation-govt-mulls-limits-on-cash-withdrawals-and-transactions-for-both-individuals-and-companies/articleshow/55484949.cms http://economictimes.indiatimes.com/news/economy/policy/demo...
    - wav-part 10y ago
      That could have been done gradually without banning notes. Introducing higher denomination make even more less sense.
      - whowalrus 10y ago
        > That could have been done gradually without banning notes. Please correct me if I'm wrong, but banning notes is to bring about a few changes like forcing people to declare black money and fighting the counterfeiting industry (just to name a few). Like you pointed out, the cash transaction limit could have been brought into force without banning the notes, but by combining both, isn't the cap more effective in deterring accumulation of black money in the future? > Introducing higher denomination make even more less sense. I don't quite understand this. Higher denomination or not, the cap is on the transaction amount, so how are they related?
        wav-part 10y ago
        1. As per a recent estimate, only 6% of black money is kept in the form of cash [1]. 2. 33 Death count as of Nov 18 [2]. 3. New notes are just as easy to counterfiet as old ones and now with 2x yield [3][4]. You can make your own conclusions. PS: If you are aware of any stats/study governmental or independent, please let me know. [1] http://economictimes.indiatimes.com/news/politics-and-nation/view-narendra-modi-takes-a-great-leap-backwards-mao-would-approve/articleshow/55522309.cms http://economictimes.indiatimes.com/news/politics-and-nation... [2] http://indianexpress.com/article/india/india-news-india/demonetisation-suicides-heart-attacks-and-even-a-murder-among-33-deaths-since-decision-4378135/ http://indianexpress.com/article/india/india-news-india/demo... [3] http://www.hindustantimes.com/india-news/rs-2-000-notes-found-on-militants-killed-in-encounter-in-kashmir-s-bandipora/story-ggbNgM5HclIFPj5jXANVyN.html http://www.hindustantimes.com/india-news/rs-2-000-notes-foun... [4] http://timesofindia.indiatimes.com/city/ahmedabad/first-fake-rs-2000-note-surfaces-in-gujarat/articleshow/55557803.cms http://timesofindia.indiatimes.com/city/ahmedabad/first-fake...
- exergy 10y ago
  That's a very valid point, and at the moment, I don't think anything is being done in that regard. However, the difference between the Have's and the Have Not's in India is enormous. Defying-belief levels of enormous. There were reports of people burning suitcases full of money, or just throwing it away in sacks because they couldn't figure out what to do with it. Given this fact, even this first step has the potential of reinjecting a lot of money back into the economy. We have this rule of thumb in India, for instance, that when buying real estate, only about a quarter of the actual price is paid in "white money" (legally) and everything else is under the table. We have a staggeringly bad corruption situation, and I think it's a good first step. On the other hand, there is something to be said about Joe Public in the emergency ward who cannot afford the fee simply because the ATMs run out of money within hours of being restocked, and he doesn't have the luxury of waiting in long lines. Not sure if the government has anything in place for such a scenario.
- CmdrSprinkles 10y ago
  In addition to what others have mentioned: Part of this is teaching people to USE banks. A comparison would be how a lot of westerners don't understand how credit cards work and just think they'll get into huge debt. Then they use one and realize it simplifies life and is easy to maintain But it sounds like there are follow-up actions planned. The President (?) of India is rumoured to be expected to give everyone 100 bucks worth of rupees next year as a "Sorry for the inconvenience" celebration with the stipulation that it goes into a bank account. And I suspect there are a lot more steps planned. Likely benefits to using direct deposit rather than being paid in cash and other options.
- tn13 10y ago
  A lot of tax evasion is because of the complexity of Tax code. If you are in Mumbai and if you are selling an assembled PC you have to pay around 10 different taxes and 2 cess. The NDA government has finally come up with GST which will replace majority of these taxes while making the tax compliance significantly easier. The current sweep has increased the risks for keeping lot of cash in hand FOREVER. Just like how 9/11 has changed the air travel forever. I already see the trends where people are now focusing more on Gold, Hawala, Casinos and other means of investing their cash.
- comments_db 10y ago
  (Reply to be deleted) > what stops someone from starting to accumulate black money again, lets say a few months from now? This is exactly what I've been concerned about. There's a high chance of acceleration in corruption in next few months to a year. There are no working solution that prevents corruption in the first place.

by jychang 10y ago

mangamadaiyan 10y ago

Thank you, that explanation worked better than mine. You pretty much hit the nail on the head.

wav-part 10y ago

Except Govt is making more harder to prosecute corrupt public officials. See my other comment here [1]. [1] https://news.ycombinator.com/item?id=13012515 https://news.ycombinator.com/item?id=13012515

whowalrus 10y ago

But what I don't see are measures to ensure that people will continue to deposit money in the banks / pay their taxes. While I appreciate the move to force the turnover of black money now, what stops someone from starting to accumulate black money again, lets say a few months from now? I hope there are measures being taken in that account.

a9entroy 10y ago
Indian logic, in a nutshell.
sterex 10y ago
Yes. There are. There will be a cap on the maximum transaction that can be done using cash. So cash accumulation gets reduced. And hoarding large amounts of cash in physical notes will be dissuaded.
- whowalrus 10y ago
  > There will be a cap on the maximum transaction that can be done using cash. Thanks, I've been hearing rumors about this too [1]. Would be a welcome step if and when the govt. implements it. [1]: http://economictimes.indiatimes.com/news/economy/policy/demonetisation-govt-mulls-limits-on-cash-withdrawals-and-transactions-for-both-individuals-and-companies/articleshow/55484949.cms http://economictimes.indiatimes.com/news/economy/policy/demo...
  - wav-part 10y ago
    That could have been done gradually without banning notes. Introducing higher denomination make even more less sense.
    - whowalrus 10y ago
      > That could have been done gradually without banning notes. Please correct me if I'm wrong, but banning notes is to bring about a few changes like forcing people to declare black money and fighting the counterfeiting industry (just to name a few). Like you pointed out, the cash transaction limit could have been brought into force without banning the notes, but by combining both, isn't the cap more effective in deterring accumulation of black money in the future? > Introducing higher denomination make even more less sense. I don't quite understand this. Higher denomination or not, the cap is on the transaction amount, so how are they related?
      - wav-part 10y ago
        1. As per a recent estimate, only 6% of black money is kept in the form of cash [1]. 2. 33 Death count as of Nov 18 [2]. 3. New notes are just as easy to counterfiet as old ones and now with 2x yield [3][4]. You can make your own conclusions. PS: If you are aware of any stats/study governmental or independent, please let me know. [1] http://economictimes.indiatimes.com/news/politics-and-nation/view-narendra-modi-takes-a-great-leap-backwards-mao-would-approve/articleshow/55522309.cms http://economictimes.indiatimes.com/news/politics-and-nation... [2] http://indianexpress.com/article/india/india-news-india/demonetisation-suicides-heart-attacks-and-even-a-murder-among-33-deaths-since-decision-4378135/ http://indianexpress.com/article/india/india-news-india/demo... [3] http://www.hindustantimes.com/india-news/rs-2-000-notes-found-on-militants-killed-in-encounter-in-kashmir-s-bandipora/story-ggbNgM5HclIFPj5jXANVyN.html http://www.hindustantimes.com/india-news/rs-2-000-notes-foun... [4] http://timesofindia.indiatimes.com/city/ahmedabad/first-fake-rs-2000-note-surfaces-in-gujarat/articleshow/55557803.cms http://timesofindia.indiatimes.com/city/ahmedabad/first-fake...
exergy 10y ago
That's a very valid point, and at the moment, I don't think anything is being done in that regard. However, the difference between the Have's and the Have Not's in India is enormous. Defying-belief levels of enormous. There were reports of people burning suitcases full of money, or just throwing it away in sacks because they couldn't figure out what to do with it. Given this fact, even this first step has the potential of reinjecting a lot of money back into the economy. We have this rule of thumb in India, for instance, that when buying real estate, only about a quarter of the actual price is paid in "white money" (legally) and everything else is under the table. We have a staggeringly bad corruption situation, and I think it's a good first step. On the other hand, there is something to be said about Joe Public in the emergency ward who cannot afford the fee simply because the ATMs run out of money within hours of being restocked, and he doesn't have the luxury of waiting in long lines. Not sure if the government has anything in place for such a scenario.
CmdrSprinkles 10y ago
In addition to what others have mentioned: Part of this is teaching people to USE banks. A comparison would be how a lot of westerners don't understand how credit cards work and just think they'll get into huge debt. Then they use one and realize it simplifies life and is easy to maintain But it sounds like there are follow-up actions planned. The President (?) of India is rumoured to be expected to give everyone 100 bucks worth of rupees next year as a "Sorry for the inconvenience" celebration with the stipulation that it goes into a bank account. And I suspect there are a lot more steps planned. Likely benefits to using direct deposit rather than being paid in cash and other options.
tn13 10y ago
A lot of tax evasion is because of the complexity of Tax code. If you are in Mumbai and if you are selling an assembled PC you have to pay around 10 different taxes and 2 cess. The NDA government has finally come up with GST which will replace majority of these taxes while making the tax compliance significantly easier. The current sweep has increased the risks for keeping lot of cash in hand FOREVER. Just like how 9/11 has changed the air travel forever. I already see the trends where people are now focusing more on Gold, Hawala, Casinos and other means of investing their cash.
comments_db 10y ago
(Reply to be deleted) > what stops someone from starting to accumulate black money again, lets say a few months from now? This is exactly what I've been concerned about. There's a high chance of acceleration in corruption in next few months to a year. There are no working solution that prevents corruption in the first place.